CFPB cracks down on illegal student debt relief scams

By Stephanie K. Mann, J.D.

The Consumer Financial Protection Bureau has taken action to end two student “debt relief” scams that illegally tricked borrowers into paying upfront fees for federal loan benefits, said the bureau’s press release. The CFPB, in a joint filing with Florida’s Attorney General Pam Bondi, shut down student debt relief company College Education Services, and separately filed a lawsuit against Student Loan Processing.US for illegally marketing student debt relief services. The bureau also issued a consumer advisory warning student loan borrowers to be wary of paying high fees for free federal loan benefits.

“Student loans are already a significant debt for many Americans. College Education Services and Student Loan Processing.US added to that hardship by taking advantage of troubled borrowers and failing to describe their services honestly,” said CFPB Director Richard Cordray. “When scam artists prey on student loan borrowers, we will take action to halt their illegal activity.”

“People who are diligently making student loan payments shouldn’t have to worry about scammers seeking to exploit them,” said Bondi. “My office will continue to protect all people from student loan scams.”

College Education Services. According to the CFPB, College Education Services, its owner, Marcia Elena Vargas, and advisor and employee, Frank Liz, marketed and advertised debt relief services to student loan borrowers with loans in default. Based in Tampa, Fla., the company advertised through Internet ads and operated websites including CollegeDefaultedStudentLoan.com and HelpStudentLoanDefault.com. The company is said to have reaped millions of dollars in advance fees from thousands of consumers before it ceased operations in February 2013.

Specifically, the bureau alleges that the company:

charged illegal advance fees;

falsely promised lower payments; and

falsely claimed quick relief from default or garnishment.

As part of the consent order signed with the CFPB, College Education Services agreed to pay a Civil Money Penalty of $25,000 to the bureau, and an additional $15,000 to the Florida Attorney General for investigative and attorney’s fees incurred as well as a civil penalty of $10,000.

Student Loan Processing.US. The bureau also filed suit against Student Loan Processing.US, a fictitious business name of Irvine Web Works, Inc., which is headquartered in Laguna Nigel, Calif., with an office in Dallas, Texas. The CFPB alleges that since at least July 2011, the company and its owner, James Krause, has been marketing and advertising services to advise and assist borrowers applying for Department of Education federal student loan repayment programs. The company operates websites under the names StudentLoanProcessing.us, StudentLoanProcessing.org, and slpus.org.

Namely, the bureau accused the company of:

falsely representing an affiliation with the Department of Education;

charging illegal advance fees; and

deceiving borrowers about the costs and terms of its services.

Consumer advisory. The CFPB has also issued a consumer advisory to all student loan borrowers. The bureau warned all student loan borrowers who have trouble managing their student debt to watch out for scams run by companies promising “student debt relief.” These companies, said the advisory, prey on distressed borrowers who run into trouble and struggle to figure out what comes next. In some cases, borrowers do not think their student loan servicers can help them and seek help from a third party. Others are lured in by aggressive marketing practices that target the most vulnerable student loan borrowers.

The advisory lists four warning signs that a student loan debt relief company may be trying to rip consumers off, including: